Stocks cling to stimulus hopes
LONDON (Reuters) – World stock markets regained a measure of calm on Monday as hopes for a raft of global interest rate cuts to soften the economic blow of the coronavirus steadied nerves, and drove US Treasury yields close to 1%.
After last week’s worst plunge for equities markets since the depths of the 2008 financial crisis, it was always going to be a wild ride.
Asia had initially dived again after China reported a record slump in factory activity, but the region rallied to finish higher as bond yields sunk and talk of OPEC supply cuts sent oil prices roaring up as much 3.5%.
Europe then made a blistering start. The FTSEurofirst 300 jumped over 2%, putting it on course for its best day in well over a year, only to suffer a major mid-morning wobble that left it just 0.2% better off.
Wall Street S&P 500 and Dow futures went on a similarly erratic trip; first diving, then springing, then stumbling and eventually stalling near-flat.
“The market is coming back because there is perception that there will be a coordinated G7 policy response,” said BlueBay Asset Management’s head of credit strategy, David Riley.
“We have Fed and ECB meetings coming up in the next couple of weeks. The Fed is the key one and it will be very hard for them to hold off [from rate cuts] if we are in a situation where the economic downsides are becoming more prevalent.”
The sheer scale of losses last week – almost $6 trillion was wiped off world stocks – have led financial markets to price in policy responses from almost every major central bank.
Futures now imply a full 50 basis point cut by the US Federal Reserve at its March 17-18 meeting, followed by a 10 basis point snip from the ECB in April. Australian markets are meanwhile pricing in a quarter-point cut at the RBA’s Tuesday meeting.
Bank of Japan Governor Haruhiko Kuroda fanned those expectations, saying the BOJ would take steps to stabilize markets if needed.
The Bank of England said it was also monitoring developments and assessing the “potential impacts on the global and UK economies and financial systems”.
Bets that the Fed will be first of the pack to move – and probably by the most, considering it has more room to cut – pushed the dollar to a one-month low against the world’s major currencies as bond yields slid south.
Individually, it was down at $1.1070 to the euro, flat on the yen at 108.08 yen and only made gains on the pound, which wilted as what are likely to be fraught post-Brexit trade talks with the EU began in Brussels.
MSCI’s broadest index of world shares rose for the first time in eight sessions after recovering from Asia’s early dip, though the 0.3% uptick barely offset its 10.4% tumble last week.